ITV plc Preliminary Results 2012

Sector

· External revenues up 3% to £2,196m (2011: £2,140m), with growth in all areas of the business

· Total non-NAR revenues up £114m, 12%, to £1,036m (2011: £922m)

· ITV Studios revenues up £100m, 16%, to £712m (2011: £612m)

· ITV Family NAR flat, outperforming the TV advertising market

· Online, Pay & Interactive revenues up 26% to £102m

· Delivered £30m cost savings

· EBITA before exceptional items up 13% to £520m (2011: £462m)

- ITV Studios EBITA up 29% to £107m (2011: £83m)

- Broadcast and Online EBITA up 9% to £413m (2011: £379m)

· Adjusted PBT up 17% to £464m (2011: £398m)

· Adjusted EPS up 16% to 9.2p (2011: 7.9p)

· Positive net cash of £206m (2011: £45m)

· Board has proposed a final dividend of 1.8p (2011: 1.2p) giving a full year dividend of 2.6p (2011: 1.6p), and a special dividend of 4.0p, worth £156m

· Positive start to 2013 with Q1 advertising expected to be up 5% and continued strong demand for ITV Studios content.

Adam Crozier, ITV Chief Executive, said:

“We’re now almost three years into our Transformation Plan and our strong performance is delivering growth right across ITV, enabling us to build a stronger and more balanced business.

“In 2012 we achieved double digit earnings growth for the third year running, in a broadly flat advertising market. We now have non-advertising revenues of more than £1bn, an increase of £114m or 12% year on year, fuelled by a strong performance in ITV Studios and our Online, Pay & Interactive business.

“Our Broadcast & Online business is robust and growing, with profits up 9% to £413m, and our audience is in high demand from advertisers. Although ITV Family Share of Viewing fell by 3% due to the unprecedented number of major one-off events, we do not expect it to impact our ad performance in 2013 and the advertising deals we have secured support this view.

“We’re investing in Online, Pay & Interactive, which are now a material and rapidly growing part of ITV with revenues increasing by 26% to £102m - and more than doubling over the last three years. We’re positioning ourselves to take advantage of the opportunities arising from the increasing number of platforms needing high quality content and from changes in consumer behavior, in particular the surge in mobile viewing.

“A key part of the Transformation Plan is building an international content business. ITV Studios achieved strong organic growth both in the UK and overseas, with revenues up by £100m to £712m, driven by our ongoing investment in creative talent and developing new programmes. We’re now building on our healthy creative pipeline with selective acquisitions in key and emerging creative markets.

“We have an increasingly robust balance sheet and strong cash flows which can support the investments required to deliver our growth strategy and future shareholder returns. Our continued focus on cash and costs has led to net cash of more than £200m at the year end.

“The Board has proposed a finalITV dividend of 1.8p, bringing the total for 2012 to 2.6p, as well as a special dividend worth £156m, balancing the need for continued investment with financial discipline.

“Over the last three years we have consistently grown our revenues, delivered double digit earnings growth and converted that earnings growth to cash to strengthen our financial position. During that time we have increased our profits by 157% to £520m, our adjusted EPS by 411% to 9.2p and we have improved our cash position by over £800m. This encouraging progress has been driven by a strong performance in Broadcast, increasing strength in Online, Pay & Interactive, and a real step change in the creative capability and output of our ITV Studios content business. While there is still much to do this is clear evidence that ITV is transforming into a more robust, efficient and balanced company.”

Full year results

Year ended 31 December (£ million)

2012

2011

Change

£m

Change

%

Broadcast & Online revenue

1,834

1,820

14

1%

ITV Studios revenue

712

612

100

16%

Total revenues

2,546

2,432

114

5%

Internal supply

(350)

(292)

(58)

(20)%

Group External revenues

2,196

2,140

56

3%

Broadcast & Online EBITA

413

379

34

9%

ITV Studios EBITA

107

83

24

29%

EBITA before exceptional items

520

462

58

13%

Adjusted profit before tax

464

398

66

17%

Adjusted earnings per share (EPS)

9.2p

7.9p

-

16%

Dividend

2.6p

1.6p

-

-

Special dividend

4.0p

-

-

-

Adjusted profit before tax and adjusted EPS remove the effect of exceptional items, impairment of acquired intangible assets, amortisation of intangible assets acquired through business combinations, financing cost adjustments, and prior period and other tax adjustments. The profit before tax and basic EPS from the Consolidated Income Statement are as follows:

Year ended 31 December (£ million)

2012

2011

Change

£m

Change

%

Profit before tax

348

327

21

6%

Basic earnings per share (EPS)

6.9p

6.4p

-

8%

Diluted earnings per share

6.7p

6.2p

-

8%

Financial performance

We have delivered strong financial results in 2012 with 3% growth in external revenue and double digit adjusted EPS growth for the third year in a row, even with a television advertising market which we estimate was down 1%. Growth has come from our non-NAR revenues as we continue to rebalance the business. We remain focused on cash and costs. We have delivered £30 million of cost savings which have funded £25 million of investment, we have generated £496 million of cash flow from our operations even after a significant increase in capex and have a healthy profit to cash conversion of 95%.

All of this saw us achieve 13% growth in EBITA before exceptional items (EBITA) and end the year with a stronger balance sheet which had positive net cash of £206 million.

ITV Family NAR was flat, but we again outperformed the television advertising market which was down 1%. ITV Family SOV was down 3%, with ITV down 6% and the digital channels continuing to perform well, up 3%. ITV Family SOCI was down 3%, with ITV down 5% and the digital channels up 2%.

2012 was an unprecedented year for UK Television with many unique events that will not return in 2013, including The Queen’s Jubilee and The London Olympics, which were largely broadcast on the BBC. This impacted ITV Family SOV, however we do not expect it to impact our advertising performance in 2013 and the deals we have secured support this view. We will reinvest part of our sports rights savings in 2013 and forecast our net programme budget will be around £980 million.

Online, Pay & Interactive revenues continue to grow as we make our content available on more platforms and improve the quality of ITV Player. Long form video requests were up 22% driven by mobile and we have launched our redeveloped News and Sport online sites and our pay offering on the ITV Player. Our new pay deals with platform owners have helped deliver growth in our pay revenues.

ITV Studios

In 2012 ITV Studios again delivered strong organic revenue growth across all parts of the business as we are seeing the benefit of our investment in creative talent and development. Total revenue grew £100 million (16%) to £712 million (2011: £612 million) and EBITA increased 29% to £107 million. Revenue growth has been helped by the inclusion of ITV Breakfast production now that Daybreak is produced by ITV Studios.

The investment we are making in a strong and healthy pipeline is reflected in the level of new commissions and recommissions in the UK and internationally. We delivered over 100 new commissions and crucially have grown the number of recommissions from 101 to 108 as we increasingly focus on formats that return and travel.

The growth in our content pipeline has led to double digit revenue growth in our UK and International production businesses and is starting to feed into our distribution business which delivered 6% revenue growth in the year as we build scale with our own and third party content.

We are building on our strong organic growth with acquisitions in both the UK and internationally, in line with our strategy of investing in key and emerging creative markets. We acquired MediaCircus and Tarinatalo to extend ITV’s production presence in the Nordic region and So Television to help build our entertainment capability in the UK. In the US we acquired Gurney Productions to strengthen and compliment our existing position as a producer for major television networks in the US. Initial cash consideration paid for all acquisitions in 2012 was £38 million, with future consideration payable depending on the performance of the companies, up to a maximum total consideration of £96 million (undiscounted) including the initial cash consideration. Given the timing of these acquisitions they have not had a material impact on the 2012 results.

Adjusted EPS

Adjusted EPS was up 16% to 9.2p (2011: 7.9p) reflecting our strong trading performance and continued focus on costs.

Adjusted financing costs of £44 million are £6 million lower than the prior year as a result of the full year benefit of bond buybacks carried out in 2011 and the impact of the bonds bought back in June 2012.

The adjusted effective tax rate of 23% is lower than the statutory rate of UK corporation tax due to adjustments made for prior periods and the recognition of overseas deferred tax credits.

Basic EPS

Basic EPS is 6.9p (2011: 6.4p). The main differences between basic and adjusted earnings per share are the losses incurred in net financing costs from the bond buybacks and mark to market on swaps, the regular adjustment for the amortisation and impairment of intangible assets acquired through business combinations and other tax adjustments.

Pension

The aggregate IAS 19 deficit of the defined benefit schemes at 31 December was £551 million (31 December 2011: £390 million), impacted by a reduction in the discount rate used to value liabilities which has added £240 million to the deficit, although this was partially offset by a decrease in the market expectation of long-term inflation.

Full actuarial valuations of the three sections of the pension scheme were finalised during the year, with the combined funding deficits standing at £587 million as at 1 January 2011. As a result of the valuations, 10-15 year funding plans have been agreed for all sections of the pension scheme. As in previous years there is a mixture of fixed and performance related contributions. In 2012 we paid a £72 million funding contribution.

Dividend

The Board has proposed a final dividend of 1.8p (2011: 1.2p) giving a full year dividend of 2.6p (2011: 1.6p). The Board is committed to a progressive dividend, taking into account the outlook for the business, while balancing the need to invest and to maintain a robust financial position against the backdrop of an uncertain economic environment.

In addition to the final dividend, the Board is proposing a special dividend of 4p per share (£156 million). Over the last three years we have made significant progress in transforming the Group – commercially, creatively and financially. While only part way through the Transformation Plan, ITV is now becoming a better business, delivering good revenue and profit growth and generating significant levels of cash which can be reinvested to drive growth and deliver shareholder returns.

This cash distribution reflects the significant progress made and our need to retain a conservative and flexible balance sheet while continuing to invest to deliver the Transformation Plan. Going forward we will balance capital discipline with the need to invest for future growth and maintain flexibility.

2013 Planning assumptions

- Cost savings of £20 million will fund investments of a similar amount in the content pipeline, technology and Online

- There is a net saving of £15 million year on year in the programme budget – total NPB is expected to be around £980 million

- Adjusted interest is expected to be around £35 million as a result of full year impact of bond buybacks

- Effective tax rate is expected to be between 22-24%

- Capex will be around £110-£120 million which includes normal Capex of around £60 million and the acquisition of the London Television Centre in January 2013

- Pension funding contribution will be £79 million

Outlook for 2013

We expect ITV NAR to be up 5% in Q1, and our Q2 performance is likely to be impacted by difficult 2012 comparatives from the Euro Championships. The underlying television advertising market continues to be broadly flat, despite monthly volatility. While we are cautious about the outlook for the TV advertising market for 2013, our objective remains to outperform it over the full year.

Strong growth is forecast for Online, Pay & Interactive and our Studios business has had a good start in 2013. It has a healthy pipeline of new commissions and we expect to deliver another year of good growth for the Studios business.

NOTES TO EDITORS

1. Unless otherwise stated, all figures refer to the full year 2012, with growth compared to full year 2011.

2.

Year ended 31 December

2012

2011

%

ITV Family NAR

1,510

1,510

-

Non-NAR Revenue

1,036

922

12%

Internal Supply

(350)

(292)

(20)%

Total External revenue

2,196

2,140

3%

3. ITV Family NAR was up 8% in January and flat in February. We expect it to be up 7% in March and up 5% for Q1 overall.

Figures for ITV plc and market NAR are based on ITV estimates and current forecasts.

4. Operational summary

Broadcasting and Online performance indicators

Year ended 31 December

2012

2011

ITV Family SOV

22.3%

23.1%

ITV SOV

15.7%

16.6%

ITV Family SOCI

38.3%

39.5%

ITV SOCI

26.3%

27.9%

ITV adult impacts

236bn

248bn

Total long form video requests (all platforms)

458m

376m

Share of Broadcast

45.8%

45.3%

Share of viewing data based on BARB/AdvantEdge data and share of commercial impact (SOCI) data based on BARB/DDS data. Share of viewing data is for individuals and SOCI data is for adults. ITV Family includes: ITV, ITV2, ITV3, ITV4, CITV, ITV Breakfast, CITV Breakfast and associated “HD” and “+1” channels. Total video requests across all platforms for Online & On Demand are based on data from ComScore Digital Analytix, Virgin, BT, iTunes, Lovefilm, Sky, 3UK and Hospedia.

5. Dividend payment date is 31 May 2013, ex dividend date is 1 May 2013 and dividend record date is 3 May 2013.

6. The revised accounting standard for pensions, IAS19 revised, will impact ITV in 2013. Firstly on the service cost, as the revision to the standard requires the inclusion of the Trustees administration fees of £4.5 million which will be reflected in our operating costs. On the same basis the service cost charges would have been £7 million higher in 2012. Secondly, it impacts the expected imputed pension charge which is forecast to increase to approximately £21 million in 2013 as the rate of return applied to the assets has been brought in line with that applied to liabilities. On the same basis the imputed pension charge in 2012 would have been £16 million. This will not affect adjusted financing costs, as we adjust this out to focus on cash costs.

7. This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of ITV. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) a major deterioration in the current outlook for UK advertising and consumer demand, (ii) significant change in regulation or legislation, (iii) failure to identify and obtain, or significant loss of, optimal programme rights, and (iv) the loss or failure of transmission facilities or core systems.